Office rents in Hong Kong’s Central district may drop for first time since 2013, says Colliers

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Office rents in Hong Kong’s Central district may drop for first time since 2013, says Colliers

Hong Kong’s Central district, the world’s most expensive office address, will see rents fall next year for the first time since 2013, according to Colliers International.

The tanking stock market, rising interest rates and the US-China trade war are all taking a toll on the confidence of financial firms, which make up the bulk of Central’s tenants, said the property services company.

That may lead to a 4 per cent fall in the area’s office rents in 2019, Colliers forecast.

“Rising interest rates may be negative for investment banks, since they would tend to reduce risk appetite, which in turn tends to depress equity and bond markets and trading volumes … this should feed through to a modest correction in rents,” said Andrew Haskins, Colliers’ Asia head of research.

Super rich investors who bought The Center finding it tough to sell floors amid property downturn

Central, the core business district, has been crowned the world’s most expensive place for renting office space for three straight years. It commands annual rent of US$307 per square foot, almost a third higher than the US$235 per square foot in London’s West End, data from CBRE shows.

Hong Kong has the closest correlation between stock index performance and office rent levels of any city in Asia, according to Colliers. The Heng Seng Index has dipped more than 20 per cent this year, giving the commercial agent cause to believe rents are on the turn.

The strong correlation is because financial stocks have a 48 per cent weighting in the index, while financial tenants occupy 54 per cent of Grade A office space in Central, the core financial business district, according to a Colliers estimate.

JLL still forecasts rents in Central could go up by as much as 5 per cent in the coming year, while acknowledging headwinds such as the trade war could cause a downturn.

“It would not be a surprise if there were a one-digit correction,” said Denis Ma, head of research at JLL Hong Kong. “We’ve seen some mainland companies who approached us looking for office space in Central telling us to put the plan on hold in the past two months.”

Mainland Chinese companies, the major driving force behind the rents in Central, have been taking a wait-and-see approach as they have concerns about the city’s economy. According to JLL, half of the new leasing deals in Central in 2017 were signed by mainland companies while so far this year they only accounted for 30 per cent.

The US-China trade war has hit confidence in Hong Kong, with major banks including Standard Chartered, HSBC, Bank of America Merrill Lynch and CitiGroup lowering their forecasts for full-year economic growth to as low as to 3.6 per cent by the end of this year and 2.7 per cent in 2019.

By the end of the third quarter, Grade A offices in Central fetched HK$148.7 per square foot. Colliers expects that to inch up to HK$148.8 per square foot by the end of 2018, bringing the full-year increase to 9 per cent.

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